How to Make the Most of the Texas R&D Tax Credit and Incentives

It has always been a misconception that qualified research activities are activities which only result in inventions or patents. As a matter of fact, qualified research is any activity undertaken in order to enhance or develop a new product or process. For instance, if you are in the life sciences & healthcare sector in Texas and would like to improve existing software that would help you keep better track of patients, then this may qualify as a research and development activity.

Why the new Texas R&D tax incentives can benefit your company

In Texas, you can claim either a sales and use tax exemption or a franchise tax credit for a particular year. This gives you the option to choose which type of incentive is best for your needs for a certain period. And as such, the flexibility that this type of incentive offers gives you the chance to closely evaluate whatever research activity you are engaged in, and analyze your expenditures annually as well. Just think of it this way: if you purchase equipment for your healthcare facility directly related to R&D in a certain year, this enables you to claim a sales tax exemption. Once you begin operating this equipment for R&D, then you can claim a franchise tax credit for the next year.

How to maximize your options

In order to fully maximize your options when it comes to the Texas R&D tax credit and incentives, you should make it a point to review all your projected expenses related to R&D every year, and even over the next years. This should be done before the next period of accounting so you can get your registration number for the sales tax exemption before making any purchases or so you can cancel your registration for the sales tax exemption before you make a tax-free purchase on the same year that you are planning to file for franchise tax credit. Otherwise, if you only make the analysis after the accounting period begins and your situation changes, you might have some difficulties.

It is also worth remembering that even though you cannot claim both the sales tax exemption and the franchise tax credit in the same year, you can carry whatever credit you incur forwards. This means that if you opt to claim a sales tax exemption for a particular year, you will still be allowed to utilize your franchise credit and carry it forward from a previous year on the current franchise tax credit report.  Keep in mind, however, that you are not allowed to make a calculation for the current year’s RTFT on your current expenditures for research.

More useful info

If you have a hospital or other health care facility, you can also engage the services of a public or private institution for higher education in the state and be able to claim an enhanced tax credit on all your qualified research expenses. And even if you claim federal credit as well, you can still claim the state’s own franchise tax credit or sales tax exemption.

When it comes to the Texas R&D tax credit and incentives, it pays to know as much as you can. To know more about the benefits you can get from these incentives and how to properly file your claims, speak with a Texas R&D Tax Credit Solutions specialist today.